RMS launch LifeRisks™ for modelling longevity and mortality risks

RMS have today announced the launch of a new version of their RMS LifeRisks™ modelling platform. The LifeRisks product is a risk modelling platform for the life insurance and pension risk management industry (reinsurers with exposure to those lines of business too, we assume). It is designed to enable them to accurately model the impacts of longevity and mortality risks and assist them with managing and transferring longevity and mortality exposures.

The press release from RMS says that LifeRisks enables these companies to assess an integrated view of both trend and shock risks into their life and annuity portfolios that is underpinned by detailed medical research and social change projections. With RMS LifeRisks, users can access a suite of mortality risk models, including the RMS^® Longevity Risk Model and RMS^® Excess Mortality Risk Model for pandemic, terrorism, and natural catastrophe risk, to manage mortality risk for six countries: Canada, France, Germany, the Netherlands, the United Kingdom, and the United States.

“RMS mortality scenarios have already become the currency for transferring excess mortality and longevity risk to the capital markets. The launch of the RMS LifeRisks platform makes it possible to bring RMS models in-house, and integrate the analytics into our clients’ internal risk management processes,” said managing director at RMS, Peter Nakada. “They can now explore and parameterize the models, and operationalize the insights provided for their own specific business portfolios.”

RMS says that LifeRisks can also help European life insurers fulfill their Solvency II requirements, by integrating their view of risk in their routine management and monitoring of their mortality underwriting risks. The outputs of the models within LifeRisks have use cases beyond regulatory compliance, RMS notes, with clients in the U.S. and other countries using the models for risk transfer decisions, capital optimization, and capital markets transactions such as longevity or mortality insurance-linked securities.

“There is a strong demand for longevity de-risking solutions,” Peter Nakada commented. “We’re confident that our role in providing independent risk analysis can facilitate the growth of this market, and gain the respect of investors. We believe the launch of RMS LifeRisks is an important step toward putting analytical tools into the hands of the key players in this growing market.”

The RMS mortality risk models generate a large number of future mortality trend and shock scenarios through “stochastic” scenario modeling. This helps re/insurers to better visualise their tail risk and at what return periods they really need to be transferring the risk to others.

“Enabled by the cloud, RMS LifeRisks provides a powerful analytical resource with virtually unlimited processing power to meet the client demand,” said Derek Blum, vice president of solution development at RMS. “The growing sophistication of models needed to manage mortality risk, and the market’s need to incorporate these views into their business process means that computational power is a vital ingredient in the risk management process.”

RMS said that they are working on additional capabilities for future releases of LifeRisks, including tools to analyse the hedge benefits between mortality and longevity risk. That kind of tool will prove very useful to many life insurers and reinsurers who may not really have a clear picture of how mortality can hedge their longevity exposures or whether their efforts in this area are effective or they are over exposed to one of these risks. Having visibility of their true mortality and longevity exposures will enable re/insurers to make sensible hedging decisions and could help to further stimulate capital markets for longevity and mortality risks.

Longevity and mortality risk have always been said to be ripe for transferring to the capital markets through insurance-linked securities and catastrophe bond type structures. However, to date we’ve only seen one longevity risk ILS deal, Swiss Re’s Kortis Capital Ltd., while on the mortality side Swiss Re’s Vita transactions (such as Vita Capital V Ltd., Vita Capital IV Ltd. (Series V and VI), Vita Capital IV Ltd. and Vita Capital III Ltd.) and Munich Re’s Nathan Ltd. all provided cover for increased mortality. So while we have seen some activity in the capital markets, and of course via the longevity swap and hedging sector as well, it has hardly become widespread. At a recent event we attended, panelists concluded that ‘A capital market for longevity risk transfer is not far away‘ so there is cause for optimism.

The release of advanced modelling tools for mortality and longevity risks is essential if the transfer of these risks to the capital markets is to become more mainstream. In this respect RMS is currently leading the market with their LifeRisks suite.